Home equity is the value of a homeowners financial interest in their home. It is the difference between the current market value of the property and any liens that are attached to it. In simpler terms, it is the portion of the home that the homeowner owns outright, as opposed to the portion that is still owed to the mortgage lender. Home equity can be calculated by subtracting the amount owed on the mortgage from the current market value of the home.

Home equity can be built in two ways: by paying down the mortgage over time and through the homes appreciation. As the homeowner makes mortgage payments, the amount owed on the loan decreases, and the equity in the home increases. Additionally, if the value of homes in the community increases, the homes value will likely increase as well, leading to an increase in home equity.

Home equity is an important financial tool that homeowners can use to meet important financial needs such as paying off high-cost debt, paying for college tuition, or making home improvements. Homeowners can tap into their equity by taking out a home equity loan, home equity line of credit (HELOC), or by using a cash-out refinance. However, it is important to note that home equity financing carries risks and extra costs.